U.S. debt is not sustainable...

Discussion in 'Business & Economics' started by Seattle, Sep 19, 2021.

  1. Seattle Valued Senior Member

    Messages:
    8,874
    I saw a post elsewhere that wondered if the increase in our national debt was "natural".

    It’s not “natural”. It’s due to irresponsible politicians pandering to their constituents. It would be best if the constituents didn’t fall for that but “free money” is what it is.

    It’s easy for voters to not see the bigger picture.

    It’s not sustainable. The Fed is keeping interest rates artificially low. This can’t go on forever. Eventually the market will have to set the interest rates.

    At some point no one will want to purchase the U.S. issued debt instruments (which are required to fund the debt) and rates will have to go up.

    When they do, the debt will be unmanageable. Right now the government spends and pays for it by issuing debt but they only make interest payments on that debt. Interest rates are virtually zero so there is no cost to any level of spending … at the moment. I could borrow a billion dollars under those conditions.

    When money isn’t “free” and interest rates go up, so to does the interest payments on the ever increasing national debt. The national debt is already at 100% of GDP. Our debt is as much as the total output of the U.S. economy for 1 year! This might work when coming out of WWII, with all the pent up demand that implies, but now it's insane.

    When interest rates go up even this interest only repayment won’t be doable and the whole financial system will be at risk.

    This is one reason to invest in Bitcoin so that you have some assets outside of this fragile dollar system. If you can't fix or control the game, play another game.
     
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  3. sculptor Valued Senior Member

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    8,476
    Very entertaining

    Please Register or Log in to view the hidden image!



    context

    So
    Seattle
    You selling your bitcoin(s?)

    ..........................................................
    meanwhile
    Congress
    OPM
    (other peoples money)
    If'n it ain't yours:
    Why be frugal?
     
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  5. Seattle Valued Senior Member

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    8,874
    I'm not sure what is so "entertaining" about that chart or why I would now be selling Bitcoin?

    The studies show, in general, that getting over the 70% mark for any longer period of time slows down the economy and in normal periods you should be well below that so that you can go up to the 70% level for short periods of time when events dictate that.

    In our case there was Covid. We were at 70% before Covid (still high) and Covid pushed us over that. Some of that was unavoidable. By the 3rd stimulus check we were overdoing it. Then there was the first Biden spending package and now the 3.5 trillion "infrastructure" package. The timing (and size) couldn't be worse.

    Even before (all Presidents) we were just reducing the purchasing power of the dollar so we're all paying for the debt without realizing it. There is no free lunch in other words.
     
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  7. iceaura Valued Senior Member

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    30,994
    There was no pent up demand coming out of WWII. The country was dead broke, and the citizenry impoverished.

    The US government handled the crisis of millions of Americans with no money and no jobs by instituting huge welfare and government subsidy programs to keep the economy from crashing until enough demand could be created. Because that government was reasonably competent, it added the money to the economy by investing in the bottom 2/3 - thereby maximizing the created demand.
    Nonsense.
    In our case there was land war in Asia Minor, the most expensive war the country has ever fought - and the whole thing put on the credit card while an incompetent and corrupt government cut taxes on the wealthy and corporate class.
    Whether better and less corrupt government can duplicate the recovery of post-WWII America remains to be seen - so far all attempts have been either too feeble or bureaucratically blocked by the fascist Party officials and supporters that have been dismantling the US economy and crippling its government for their own benefit since the late 1970s, overtly since 1980.
     
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  8. Seattle Valued Senior Member

    Messages:
    8,874
    That's pretty much the definition of pent-up demand. People weren't without money during the war, industry was at full capacity for the war effort, the economy boomed after the war, technology resulted in washing machines/dryers/vacuum cleaners, people needed new cars by this point and child birth meant that more housing was needed.

    Our industry was profitable because most other industry (in other countries) had been destroyed by the war.

    The rest of your post is just the automatic rant that we've become so used to.
     
  9. billvon Valued Senior Member

    Messages:
    21,645
    After WWII the country had been rationing for five years. People put off buying tires, nylons, cars, bicycles, even gasoline. (And for the first time, cars and gasoline were both commonly available.) It was the most pent up demand the country had seen since its founding.
     
  10. iceaura Valued Senior Member

    Messages:
    30,994
    ? That's the fifth or sixth time you guys have made that mistake, right here on this forum.

    Want, need, desire, is not economic demand. Economic demand is measured in money, not hormone levels.

    Try 1) Mistaking wants or needs for "demand" is one of the half dozen well known standard errors of the normal freshman college student new to economics, which are so predictable they are addressed in the first couple of chapters of every introductory econ text ever written.

    Once again: No, it isn't. Unmet want or need is usually the opposite of demand, in a sense ( "negative" demand, pent-up debt or liability or cost. )

    What people have "put off" buying or want to buy or whatever is almost entirely irrelevant. (standard example, from the econ texts: Somalians who are starving want food very much. They desire food. But there isn't enough demand for food in Somalia to motivate a single capitalist corporate supplier to ship it to them. There is so little demand for food in Somalia that suppliers leave it rot in warehouses. That is way too simplistic as an account of historical reality, of course - but it's just intended to illustrate a basic term and clear up a common confusion).

    Lack of money or other valuables to trade has to be overcome to create demand. Impoverished economies feature less demand, not more demand. People without money or jobs or other value to trade bring less demand, not more demand, to a market. When demand for enough goods falls far enough, an entire economy can collapse - regardless of what people want, or their "pent up" wishes and desires.

    Try 2). In a modern industrial economy, one with money and banking and so forth, demand is measured in money available and budgeted. ( The theoreticians use money as a proxy for value in trade.) If there is no money available and budgeted for some good or service, there is no demand for that good or service. Impoverishment and joblessness, such as is created via millions of newly released soldiers suddenly becoming unemployed and penniless civilians, is not demand.

    When the country is dead broke and millions of people are suddenly jobless and penniless there is no demand to power economic recovery and restore prosperity - an industrial economy that has suffered such a disaster will normally (in theory) remain stuck in that suboptimal equilibrium indefinitely: governments competent enough to lever an economy out of such an equilibrium are rare, and so are the natural or artificial disasters large enough and timed well enough to do that by luck.

    Try 3) In the Great Crash of 1929, for example, which was the historically primary creator of the unmet desire for cars and tires and nylons and so forth (predating WWII by eight or nine years in the US) what crashed was demand: in the Depression that followed there was plenty of supply, unused industrial capacity and idled or poorly farmed land and unemployed labor and so forth, but insufficient demand. The economy of course got stuck in that miserable equilibrium, for years. It took a combination of extraordinarily competent government (the "New Deal") and extraordinarily large disaster (pandemic, climate, and world war) to jolt it out. This is all just standard, boiler-plate economic theory.

    This is part of what one learns in introductory economics, at the high school or freshman college level. It's the basic problem with the bizarre lunacy of supply side economics - you can pile up supply until it blocks the sun, but if nobody can buy it all you have created is debt and garbage. What the government had to create, in the face of the huge cost of WWII and the restoration of warfighting resources to the civilian economy, was demand: The ability to buy, to meet those needs and desires by economic exchange.
    Our industry became profitable, despite the enormous cost of retrofitting for the civilian markets, when (and not until) civilian demand was heavily subsidized by the Federal government; the Federal government created otherwise nonexistent demand for otherwise unaffordable goods and services by subsidizing household expenditures and investments - and not only in the US, but internationally.
     
    Last edited: Sep 25, 2021
  11. Seattle Valued Senior Member

    Messages:
    8,874
    The New Deal was in the 1930's and not after the war. The high tax rates were to pay for the war until reduced by Kennedy and then much later by Reagan.
     
  12. billvon Valued Senior Member

    Messages:
    21,645
    Correct. Want, plus purchasing power, plus the opportunity to buy, equals demand.

    Want: there was plenty of pent-up "want" from rationing during the war.
    Purchasing power: There were hundreds of thousands of GI's coming home from the war. They had a lot of saved up pay from the war.
    Opportunity to buy: Being home from the war, they were able to purchase. (And factories, no longer having to put their entire output into the war effort, had goods for sale.)

    Simple.
     
  13. iceaura Valued Senior Member

    Messages:
    30,994
    No.
    Opportunity to buy is not relevant. In standard theory and common parlance it is a consequence of demand - in your WWII error, for example, you (correctly) assumed that.
    "Want" is only marginally involved, and only if one is very careful to define the term. "Want" is not measured when measuring demand.

    Purchasing power is involved, centrally. The focus of that power - what it is budgeted for, what its possessor plans for it - is the other side of that coin. If you explicitly and consciously redefine "want" to mean that focus, avoiding the reading of minds, you might be able to use the term without hitting the ditch. I doubt you would gain anything worth the obvious and illustrated risk of confusion. I think you would still wander off like this:
    Those are two fundamentally different uses and meanings of "want". The consequence of confusing them is that you mistake personal want for economic demand. That is one of the classic mistakes of Reaganomics - the Supply Side foolishness that has driven the US. economy into a ditch.

    Demand is measured in money. If you keep that in mind, it will save you from confusing economic demand and people's "wants".

    They were mostly broke and jobless. Much of their pay had gone to support their families. Their saved up pay was nowhere near enough to bail out the economy - the US was looking at economic disaster.
    It took years to retool the factories (back then it took years just to set up a production line for a new model of a car already in production, let alone some novel gizmo that had to be set up from scratch) and most GIs did not have the new job skills suddenly required (farming was a - possibly the - major employer when the War started.)

    So no, there wasn't nearly enough opportunity to buy to power up the US economy - remember that even if they had money (few did - the economy was still in Depression, as it was when the US declared war) very few people in civilian life knew the war was about to end, so there was no backlog of demand motivating what would have been illegal production - no orders for thousands of pairs of nylons sitting on a desk with the money budgeted and ready, waiting for Hiroshima; no warehouses stuffed with consumer goods waiting for the hardware stores in Peoria to place their orders and mail the big checks.

    All this is more or less a theoretical argument, and really shouldn't be necessary. The history of what actually happened - how the US government actually forestalled the economic collapse it was facing (and has ruined so many other countries that fought wars they couldn't pay for, whether they "won" or not) -is written down. The US didn't pass the GI bill and the mortgage guarantees and all the rest out of the charity of General Motors heart.
     
  14. billvon Valued Senior Member

    Messages:
    21,645
    Right! I mean, no one wants Jeeps, tires, or gasoline.
     
  15. Seattle Valued Senior Member

    Messages:
    8,874
    The fact is that there was pent-up demand, we had full employment during WWII, our exports were up for a while because the rest of the world had to rebuilt their bombed out industry.

    No one is arguing that the GI Bill wasn't a good policy addressing all the returning soldiers coming home at once.

    Both of my parents were raised on a farm. My mom became a teacher and my dad went straight from high school to the military in WWII.

    They saved their money, bought a house (paid cash, no mortgage guarantees) and a new car (paid cash) and I was born 10 years later.

    This happened all over the country. Why every Iceaura argument always has to involve unionism and Reagan I have no idea, obsession I guess. No unions were involved in my parents history as well.
     
  16. iceaura Valued Senior Member

    Messages:
    30,994
    ? You are apparently trying to make some kind of point.
    You did remind me of a factor I had forgotten, though: there was a lot of supply sloshing around as military surplus, further depressing the US economy. Iirc that wasn't as marked and significant a factor as the shortage of demand, but it didn't help.
    We already had a thread on economic "illiteracy". It was confused from jump, partly because it tried to deal with ignorance of economic theory and irresponsible money handling and so forth under "illiteracy" (which did illustrate the difference, but not usefully).
    Want is not economic demand.
    Economic demand is not want.
    Literacy refers to comprehension of words and their meanings. Illiteracy would include a failure to keep different words and their different meanings separate and individually clear.



    This is an accurate statement of fact:
    Nonsense. There was a large and potentially catastrophic shortage of demand. That is why the Federal government acted to boost demand.
    What happened all over the country was Federal subsidy of mortgage loans and GI education and so forth - including infrastructure projects that paid otherwise unavailable wages and thereby jumpstarted demand for consumer goods, btw, something the usual suspects are once again blocking, once again making obvious their enthrallment with Soviet centralized economic planning, once again wasting time and money and political will on crap that did not work then and will not work now (trying to boost supply without creating demand).
     
  17. billvon Valued Senior Member

    Messages:
    21,645
    It does not surprise me that you missed it; you are willing to go the extra mile and put in the effort required to misunderstand something that simple. Bravo.
     
  18. iceaura Valued Senior Member

    Messages:
    30,994
    It was a courtesy - one of those little white lies that smooth things over if everyone's posting in good faith.
    I won't bother in the future.
    Funny you mentioned Jeeps - I almost used them as a teaching example, given their history. From Wiki: "After the war, Willys did not resume production of its passenger-car models, choosing instead to concentrate on Jeeps and Jeep-branded vehicles, launching the Jeep Station Wagon in 1946, the Jeep Truck in 1947, and the Jeepster in 1948. An attempt to re-enter the passenger-car market in 1952 with the Willys Aero sedan proved unsuccessful, - - - " That is, the formerly strong demand for civilian passenger vehicles didn't pick back up enough to support retooling etc for several years. Pent up wants? Maybe. Pent up demand? Did not exist - not even for your specially chosen and cherry-picked examples.
    The US economy was facing a shortage of demand severe enough to crash it. It was saved by competent government intervention, largely consisting of subsidized and created demand.
    Seriously?
    The New Deal was the name given the collection of trial and standard governing policies in the US from the early thirties until the early eighties - fifty years without a major crash or debt crisis.
     
  19. Seattle Valued Senior Member

    Messages:
    8,874
    Sure it's from Wikipedia but...

    "The New Deal was a series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States between 1933 and 1939."

    Seriously...
     
  20. iceaura Valued Senior Member

    Messages:
    30,994
    So you did learn something. Welcome to the fact house.
    Why yes - and continued as Federal government policy for the next fifty years, of course, until repudiated and partly dismantled by the Federal government under the direction of the Republican Party as corrupted by the resurgent fascist movement in the US.

    More or less beginning in the late '70s, the dismantling of the very popular and well-established New Deal is still underway - with consequences so bad the perpetrators are on record refusing to acknowledge even the basic timeline of events.

    But a main point or two is all you need for this strictly economic thread - such as this one:
     
  21. Seattle Valued Senior Member

    Messages:
    8,874
    Yeah, quoting yourself doesn't really count now does it?
     

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